State Street Global Advisors, one of the pioneers in the creation of exchange-traded funds, has recently brought to market three new ETF strategies. Each new fund is sector-based and carries the SPDR branding. The start date for these ETFs was Sept. 28, 2011.
The first of these new State Street Global Advisors ETFs is the SPDR S&P Aerospace & Defense ETF (NYSE:XAR). XAR attempts to replicate the S&P Aerospace & Defense Index, before fees and expenses. The top 10 holdings and weightings are listed below:
- Goodrich (NYSE:GR): 5.3%
- Textron (NYSE:TXT): 4.4%
- Rockwell Collins (NYSE:COL): 4.12%
- BE Aerospace (NASDAQ:BEAV): 4.09%
- Spirit AeroSystems (NYSE:SPR): 4.05%
- Hexcel Corp (NYSE:HXL): 4.05%
- Triumph Group (NYSE:TGI): 3.83%
- Northrop Grumman (NYSE:NOC): 3.79%
- United Technologies (NYSE:UTX): 3.78%
- ITT Corp (NYSE:ITT): 3.74%
It’s difficult to determine how this program will work in light of the United States’ current fiscal situation and how defense spending might be curtailed significantly depending on the Congressional “supercommittee’s” decision. Time will tell if this was the best or the worst time to bring XAR to market.
The second of the new ETFs is the SPDR S&P Health Care Services ETF (NYSE:XHS). XHS attempts to replicate the S&P Health Care Service Industry Index, before fees and expenses. The top 10 holdings and weightings are listed below:
- Catalyst Health Solutions (NASDAQ:CHSI): 2.25%
- LifePoint Hospitals (NASDAQ:LPNT): 2.16%
- Lincare Holdings (NASDAQ:LNCR): 2.13%
- HCA Holdings (NYSE:HCA): 2.13%
- Patterson Companies (NASDAQ:PDCO): 2.11%
- Cardinal Health (NYSE:CAH): 2.11%
- WellPoint (NYSE:WLP): 2.08%
- Health Net (NYSE:HNT): 2.07%
- Quest Diagnostics (NYSE:DGX): 2.06%
- Henry Schein (NASDAQ:HSIC): 2.06%
XHS faces a different set of factors in its infancy. Health care services derive a significant portion of income from insurance companies that pay patent claims. �Obamacare� would represent significant change and potential backlash. The request by the current administration to seek a Supreme Court ruling on this program has again brought health insurance to center stage. Until this controversial program is settled, it’s difficult to determine how XHS will fare.
The last of the newcomers is the SPDR Software & Services ETF (NYSE:XSW). XSW is based on following the S&P Software & Services Industry Index, before fees and expenses. The top 10 holdings and weightings are listed below:
- Nuance Communications (NASDAQ:NUAN): 0.87%
- CommVault Systems (NASDAQ:CVLT): 0.85%
- Red Hat (NYSE:RHT): 0.84%
- Autodesk (NASDAQ:ADSK): 0.82%
- Teradata Corp (NYSE:TDC): 0.81%
- Oracle (NASDAQ:ORCL): 0.81%
- Syntel (NASDAQ:SYNT): 0.81%
- Tibco Software (NASDAQ:TIBX): 0.81%
- LogMeIn (NASDAQ:LOGM): 0.8%
- Informatica (NASDAQ:INFA): 0.8%
XSW limits its exposure to any one holding to less than 1%. According to the full holdings page, the ETF holds a total of 138 different stocks, with the smallest position at 0.56%. XSW might be the best performer out of the class of newcomers. The future demand for software and services is consistent with the potential of increased growth. The limiting factor of this ETF is that it has no large holdings in any one stock that could greatly outperform the rest of the market — of course, this dilution also provides its safety net.
Jeffrey L. Stouffer is the principal of Mercantile Capital Group, a Herndon, Va.-based introducing broker registered with the CFTC and a member of the National Futures Association. He can be reached at mercapitalgroup@aol.com. As of this writing, he did not own any positions in the aforementioned stocks.
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